PenCom Insight: Non-interest fund records significant growth, hits N38.41bn in assets

The non-interest fund (Fund VI), introduced by the National Pension Commission (PenCom) in September 2021, has recorded significant growth since its inception, mainly due to a sound operational framework. PenCom introduced Fund VI in furtherance of implementing the multi-fund investment structure, which seeks to empower pension contributors and retirees to choose a particular fund to invest their pension savings.

The non-interest fund has been received with great enthusiasm by pension contributors and retirees. While the fund’s assets stood at ₦7.79 billion in September 2021, the fund has grown to ₦38.41 billion by the end of February 2023, translating to a growth of ₦28.46 billion over the period.

THE MULTI-FUND INVESTMENT STRUCTURE

At the commencement of the CPS, all active contributors’ funds were being invested solely in the RSA ‘active’ fund. PenCom, thus, conceived the multi-fund investment structure to align the age and risk profiles of contributors. Introduced in July 2018, the multi-fund investment structure separated the RSA fund into six fund types (Funds l to Vl). As a result, pension contributors and retirees are allowed to make specific choices regarding the investment of their pension funds.

The multi-fund structure is consistent with allowing individuals to make their own choices under the contributory pension scheme (CPS). These choices include selecting a pension fund administrator (PFA) to open a retirement savings account (RSA) and choosing a fund under the RSA multi-fund structure, the transfer of an RSA from one PFA to another, etc.

INTRODUCING THE NON-INTEREST FUND

Section 7.3 of the regulation on investment of pension fund assets issued by PenCom, established the non-interest fund (Fund VI) among the fund types to be managed by licensed PFAs. It is a fund which complies with the provisions of Islamic Commercial Jurisprudence and any other established non-interest principles, as approved by the Financial Regulation Advisory Council of Experts (FRACE) or any other body constituted by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission. To boost confidence amongst pension contributors and retirees, the FRACE has certified that the operational framework issued by the commission complies with non-interest finance principles.

Some of the objectives of the operational framework issued by PenCom include: promoting financial inclusion within the Nigerian financial system, establishing standards and procedures for managing Fund VI by licensed PFAs, and assisting in expanding the coverage of the CPS by attracting employees who are interested in non-interest funds.

Sequel to the issuance of the operational framework by PenCom, all PFAs were required to create and maintain the non-interest fund for interested RSA holders. The Fund shall be separated into two funds, for active RSA holders and retirees, respectively.

The permissible instruments for the Investment of Fund VI assets include corporate/ supranational sukuks, government sukuk (including Islamic treasury bills and euro sukuk) issued by the federal government of Nigeria, CBN or FGN agencies and Infrastructure sukuk backed by FGN/CBN guarantee. Other instruments are compliant money market instruments, ordinary shares, private equity funds and real Estate funds.

HOW TO TRANSFER YOUR PENSION SAVINGS TO THE NON-INTEREST FUND

The non-interest fund is optional for pension contributors and retirees. Consequently, RSA holders in funds I, II, and III and retirees in fund IV are eligible to transfer their RSA contributions to the non-interest fund (Fund VI) by making a formal request to their PFA in line with the provisions of the RSA multi-fund implementation guidelines and section 7.6 of the investment regulation dealing with transfers between fund types within a PFA.

Therefore, eligible RSA holders who are interested must visit their respective PFAs to request the transfer of their pension funds from their existing fund to the non-interest fund by completing and signing a consent form to be issued by the PFA. The personal presence of the RSA holder is required due to the need for authentication. Consequently, regardless of the consent form’s availability, the process cannot be concluded until the RSA holder visits the PFA and appends his/her signature to the form. After that, the PFA will move the funds from the existing fund to the non-interest fund and advise the RSA holder accordingly.

In conclusion, as the commission and pension fund administrators intensify enlightenment efforts, it is expected that the growth of the non-interest fund will be sustained.